Early third-quarter earnings show a 'resilient' U.S. consumer, with signs of strain
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Demand-pull inflation, Economic growth and the business cycle, Cost-push inflation
What happened
Companies ranging from Royal Caribbean to Coca-Cola and UPS report steady consumer spending despite high inflation, and early third-quarter earnings point to a resilient U.S. consumer alongside some signs of strain.
The economics
Students can use this to explain demand-pull inflation: spending that holds up means aggregate demand stays high, which pushes prices upward when supply does not expand to match. It also illustrates the expansion phase of the business cycle, since consumer spending is a major component of aggregate demand and its resilience supports growth.
Evaluation
The resilience may be short-lived: high inflation erodes real purchasing power, so spending could fall if incomes do not keep pace with prices. The reported signs of strain also suggest the experience differs across income groups, with clear winners and losers.
Practice question
Using this example, analyse how strong consumer spending can affect inflation and the business cycle, and evaluate whether such resilience is sustainable.
Where it fits in the syllabus
- Demand-pull inflation: Aggregate demand grows faster than the economy can supply, pushing the general price level up.
- Economic growth and the business cycle: Long-run growth in real GDP and the short-run swings between expansion and recession, when output falls below potential.
- Cost-push inflation: Higher costs of production such as wages, energy or materials lead firms to raise prices.
- IB Economics: Aggregate Demand and Supply, Measuring Economic Activity
- A-Level Economics: Macroeconomic Objectives, Aggregate Demand and Supply
- AP Macroeconomics: Economic Indicators and Business Cycle, National Income and Price Determination
- IGCSE Economics: Macroeconomic Objectives